Global Macro: Stimulus Cuts Likely to Continue Despite Weak Jobs Reports

NEW YORK (TheStreet) -- Two consecutive months of weak U.S. jobs reports likely won't deter the Federal Reserve from cutting its stimulus program.

Economists had projected nonfarm payroll data would be in the range of 200,000 added jobs per month in December and January, but the numbers fell short both months, leading investors to question the health of the U.S. labor market at a time when the Fed is reducing its bond-purchasing program.

Dallas Fed governor Richard Fisher, told CNBC on Friday that the central bank doesn't base its policy decisions on a single bad number. The statement showed the Fed may not be judging the past two months of weak payroll data too critically.

Based on a four-month moving average of the payroll data, the employment figure has hovered around 180,000 added jobs per month since June. That figure smooths out a few monthly misses, such as the meager 75,000 jobs added in December, and allows for a clearer view of trends in the U.S. labor market.

The 180,000 monthly average is a testament to the economic recovery since 2008, but the figure has yet to consistently come in above the 200,000 monthly jobs threshold that would signify strong employment growth.

Although employment growth has been gradual, the unemployment rate has been falling quickly since last year, partly because of declining civilian participation. Still, financial markets are wondering whether the Fed will start raising rates if the unemployment rate falls to 6.5% as Fed officials had said they would do.

Janet Yellen, the new Fed chairwoman who began her term this month, will have to answer that question.

The Fed will likely continue to cut its stimulus program, but in order to keep financial markets stable, the new emphasis of the central bank will be on raising the inflation rate and increasing monthly hiring to more than 200,000 jobs.

When employment, inflation and growth improve more consistently, then the central bank will feel it has reached its target to begin raising short-term rates.

US Change in Nonfarm Payrolls ChartUS Change in Nonfarm Payrolls data by YCharts

 

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. He takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

Follow @Macroinsights

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